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Analyst Blog

Yesterday, after the closing bell, Arris Group Inc. (ARRS - Analyst Report) declared financial results for the fourth quarter of 2012, which fell below the Zacks Consensus Estimates. However, the company exited the third quarter with a strong order backlog. Arris currently has a Zacks Rank #2 (Buy). The company has decided to purchase the cable set top box business of Motorola Mobility, a subsidiary of Google Inc. . The deal is expected to get regulatory approval by the second quarter of 2013.

GAAP net income in the fourth quarter of 2012 was $14.8 million or 13 cents per share compared with a net loss of $59.6 million or 51 cents per share in the prior-year quarter. However, quarterly adjusted (excluding special items) earnings per share came in at 22 cents, which fell below the Zacks Consensus Estimate of 25 cents.

Quarterly total revenue was $344 million, up 22.4% year over year but fell shy of the Zacks Consensus Estimate of $354 million. Quarterly Domestic revenue was 74.4% while International revenue was 25.6%. Comcast Corp. (CMCSA - Analyst Report) and Time Warner Cable Inc. (TWC - Analyst Report) together constituted 51.7% of the total fourth-quarter revenue of Arris.

Quarterly gross margin came in at 35.8% compared with 37.9% in the year-ago quarter.  Operating income, in reported quarter, was $25.5 million compared with $25.2 million in the prior-year quarter. Quarterly operating margin was 7.4% compared with 9% in the year-ago quarter.

Total order backlog of Arris, at the end of fiscal 2012, was $222.6 million compared with $148.5 million at the end of fiscal 2011. Book-to-bill ratio was 1.11 in the fourth quarter compared with 0.98 in the prior-year quarter. Arris refrained from repurchasing its own common stocks in the reported quarter. 

Arris generated $11.8 million of cash from operations during the fourth quarter of 2012 compared with $60.9 million in the prior-year quarter. Quarterly free cash flow (cash flow from operation-less capital expenditure) was $4.8 million compared with $56.5 million in the year-ago quarter. At the end of fiscal 2012, Arris had $530.1 million of cash & marketable securities on its balance sheet compared with $589.9 million at the end of 2011. Total debt was $222.1 million at the end of fiscal 2012 compared with $209.8 million at the end of 2011.

Broadband Communications Systems Segment

Quarterly revenue was $272.7 million, up 28.7% year over year. Quarterly gross margin was 36.1% compared with 38.3% in the year-ago quarter. Arris shipped 2.266 million CPE units, 87% of which are DOCSIS 3.0. The company also shipped 105,246 C4 CMTS downstream ports. The company’s E6000 Cable Edge Router received market traction.

Access, Transport, & Supplies Segment

Quarterly revenue was $54.6 million, up 7.1% year over year. Quarterly gross margin was 24.9%, compared with 25.9% year over year.

Media & Communication System Segment

Quarterly revenue was $16.7 million, down 7.7% year over year. Quarterly gross margin was 66.1% compared with 67% in the year-ago quarter.

Financial outlook

Management’s guidance for net sales in the first quarter of 2013 will be within the range of $350 - $370 million. Earnings per share, on a GAAP basis, are expected within the range of 2 cents to 6 cents. Earnings per share, on a non-GAAP basis, are expected within the range of 22 cents to 26 cents.  This includes stock-based compensation expenses of 4 cents per share.

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